MI tax deduction should be made permanent
Since 2007, homeowners have been able to deduct from their federal income taxes mortgage insurance premiums paid to private MI companies and government agencies, including the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) Rural Housing Service (RHS). From 2012-2016 more than 4 million homeowners annually claimed the MI premium tax deduction, and in recent years millions of homeowners continued to benefit from this tax provision. This important deduction supports low- and moderate-income homeowners. In 2019, middle-class homeowners received an average deduction of $2,000, according to IRS data.
Tax deduction for MI premiums has been extended several times
Most recently in December 2020 as part of the Consolidated Appropriations Act of 2021. While this deduction has benefited millions of homeowners since 2007, its effectiveness is diminished by:
- Its temporary nature
- Its adjusted gross income (AGI) phaseout
The ability of borrowers to deduct MI premiums from federal income taxes should be made permanent because MI premiums are the economic equivalent of mortgage interest payments, and so should remain deductible and at parity with mortgage interest payments. Further, the existing AGI phaseout should be increased or eliminated since the mortgage insurance premium deduction is the only itemized deduction subject to such a cap and the phaseout has never been adjusted.
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